Lessons on investing from creating a cricket dream team

Date :
13/04/2016

Read: 4 mins

Investing is like a game of cricket. The hard work lies in choosing your options in line with your risk profile & financial goals and once you’ve done that, you just have to stay calm and enjoy the game.

There’s a lot to cricket than meets the eye.

More than the glamour and the action and the rush of adrenaline when our team is a few runs away from victory, is the strategy, planning and careful selection that makes a great team, and a great game.

There are some iconic cricket players who have captured the hearts and minds of millions of Cricket fans around the globe, and left an indelible legacy in their wake. Legendary batsmen such as Brian Lara, Adam Gilchrist and Sachin Tendulkar, bowlers such as Wasim Akram and Anil Kumble, Glenn McGrathand even fielders such as Ajay Jadeja and Jonty Rhodes.

The Concept of the Dream Team

What if there was a team of just the best batsmen, or fantastic fielders or brilliant bowlers? Would that really be the Dream Team?

No. The Dream Teams is made up of multiple strong players, rather than just one legend, for instance, Australia, back in the day, and India right now.

Are you up to the task?

When it comes to captaining a cricket team,there’s advice and criticism all around! Every fan feels like they could do a better job than Dhoni of catapulting India to victory every single time. Yet, somehow, those same individuals falter when it comes to creating their own investment portfolio, and captaining their own finances to success!

In this article, let us imagine that you are the captain of your financial life & using the analogy of a cricket dream team, let us try to learn some lessons on portfolio construction and prudent financial planning.

#1: Create the right mix:

The success of a cricket team depends to a large extent on the selection of the right mix of players having different yet complementary skill sets related to batting, bowling and fielding. Similarly, as an investor you need to understand the peculiar risk reward characteristic of the available investment options and how they can be used to meet your financial goals. For e.g. you canrely on plain fixed deposits or debt mutual funds for short term financial goals. Equity in the short term can be risky, but in the long term is by far the most profitable option.

A good team is one that has excellent players and does not rely on a single player. Aperfect example of this was the West Indies team in the recent ICC World T20 where despite their star player Chris Gayle not being able to make a mark in the entire tournament, the lower order batsmen took the mantle & did the needful for the team. Similarly, it’s essential you diversify your investments into multiple schemes: this not only reduces the risk but also ensures that returns at an overall portfolio level are stable.

On the match day, just like a captain makes last-minute changes in the team depending upon the existing form of the players, unexpected injuries, pitch and weather conditions etc., an investor should also set aside a time for periodic review of the investments & make appropriate changes in the portfolio depending on the changes in the overall economic environment, financial goals, risk tolerance etc. For this, you can earmark a fixed date twice a year, whereby you re-balance the portfolio to bring it in line with your risk profile, with the help of a financial planner or based on your own research.

Once you select a player in your team, you must have full conviction in his talent and give him enough opportunities to prove his merit. A good example was a batsman like Virender Sehwag who, though inconsistent at times, had the power like no other to demolish the opposition on his given day& hence deserved a lot of faith from his captain. Similarly, as an investor, you should spend a lot of time on research BEFORE buying the investment, but once you do so, stick with it despite short term volatility. The reason for that is that most high-yield products depend on long terms to become as profitable as promised.

Bonus: Good captains do not hesitate to replace players that are proving to be a drag on overall team performance &similarly as an investor, you should also be pro-active in removing toxic or underperforming products from your investment portfolio.

In many ways, investing is like a game of cricket. The hard work lies in choosing your options well in line with your risk profile & financial goals and once you’ve done that, you just have to keep the conviction and, as our star captain MSDhoni says, stay calm and enjoy the game.